Nordea Bank AB (NDA), the Nordic region’s largest lender, joined Svenska Handelsbanken AB (SHBA) and Swedbank AB in reporting a jump in capital ratios after profits increased, cementing their positions as Europe’s best capitalized banks.
Nordea reported a core Tier 1 ratio of 14.4 percent, excluding transition rules, at the end of September, up from 14 percent at the end of June, the Stockholm-based lender said in a statement today. Swedbank had a common equity Tier 1 ratio under Basel II of 18.8 percent while Handelsbanken reported a core Tier ratio under the same regulations of 19.3 percent.
Sweden’s banks have boosted capital buffers amid rising profits and weak demand for credit. While Sweden subjects banks to some of the strictest reserve rules in the world and has warned it may raise requirements further after housing prices and debt levels soared to records, all Sweden’s major banks already exceed the 2015 targets.
The “core Tier 1 ratio has improved mainly due to strong capital generation and strict volume discipline,” Nordea Chief Executive Officer Christian Clausen said in today’s earnings statement. “Cost efficiency continues to be high on the agenda and we see our initiatives delivering better than expected. Credit quality continues to improve, especially in shipping.”
Profit at Nordea rose to 777 million euros ($1.07 billion) from 686 million euros a year earlier and compared with an average 787.8 million-euro estimate of 13 analysts surveyed by Bloomberg. Loan losses fell 28 percent to 171 million euros while costs dropped 2.5 percent to 1.23 billion euros.
Handelsbanken’s third-quarter net income rose 14 percent to 3.61 billion kronor ($566 million). Swedbank yesterday said profit in the period jumped 19 percent to 4.17 billion kronor. Under Basel III rules, Handelsbanken said its core Tier 1 ratio was 18.8 percent while Swedbank reported a ratio of 18 percent.
Nordea shares fell 2.2 percent to 80.75 kronor as of 9:42 a.m. local time in Stockholm trading, while Handelsbanken dropped 3.3 percent to 286.3 kronor. Both stocks gained yesterday after Swedbank reported earnings that beat estimates.
Shares of Sweden’s four biggest banks have gained an average 33 percent this year amid speculation that capital buffers exceeding requirements will lead to higher shareholder payouts or extraordinary dividends.
Sweden requires its biggest banks to hold a core Tier 1 ratio of at least 12 percent by 2015. The European Central Bank will require the euro region’s biggest banks to hold a capital buffer of at least 8 percent as it takes charge of financial supervision in the currency bloc next year. The ECB will ask banks to hold capital equivalent to 7 percent of risk-weighted assets, plus a supplemental 1 percent for the largest institutions.
The Swedish government has warned banks it may further toughen capital standards to protect the economy and taxpayers from any financial industry losses. The government is also introducing counter-cyclical buffers for banks on top of the capital requirements and has also called for risk-weights on mortgages to be raised further.
Nordea has repeatedly said it is generating more cash than it needs and that it plans to hand any excess to shareholders. Clausen said in July that the lender is “most likely” to pay out a higher dividend for 2013 and that its capital levels support a higher payout ratio than the 40 percent of net income the Nordic lender currently targets.
Alvaro Serrano and Alice Timperley, analysts at Morgan Stanley in London, said in a note to clients on Oct. 9 that Sweden’s banks should be able to raise their dividend payments even if the government raises capital rules further.
Net interest income at Nordea fell 0.5 percent to 1.39 billion euros in the third quarter while net commission income rose 9.6 percent to 652 million euros. Nordea, which has suffered from loan losses at its Danish unit following Denmark’s housing crash and at its shipping division amid the maritime industry’s worst crisis since World War II, said net loan losses fell to 171 million euros from 236 million euros a year earlier and 186 million euros in the second quarter.
Handelsbanken’s net interest income rose 3.4 percent to 6.68 billion kronor in the third quarter while net commission income increased 8.8 percent to 1.9 billion kronor. The bank’s return on equity was 14.2 percent, compared with a return of 16.2 percent at Swedbank and 10.8 percent at Nordea. SEB is scheduled to report earnings for the third quarter tomorrow.
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